A PROJECT WORK ON

WORKING CAPITAL MANAGEMENT OF

UNDER THE UNIVERSITY OF CALCUTTA

-- SUBMITTED BY--
NAME : SAPTADIP HALDAR
REGISTRATION NUMBER : 043-1112-0452-201
NAME OF COLLEGE : HERAMBA CHANDRA COLLEGE
CU ROLL NUMBER : 201043-21-0269

COLLEGE ROLL NUMBER : 204336

SUPERVISED BY : DR. JAYANTA GHOSH

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 Project report
Submitted for the Degree of B.Com Honours in Accounting and Finance under

THE UNIVERSITY OF CALCUTTA )

TITLE OF THE PROJECT

WORKING CAPITAL MANAGEMENT
SUBMITTED BY:
NAME : SAPTADIP HALDAR

REGISTRATION NUMBER : 043-1112-0452-201

NAME OF COLLEGE : HERAMBA CHANDRA COLLEGE

COLLEGE ROLL NUMBER : 204336

CU ROLL NUMBER : 201043-21-0269

SUPERVISED BY :
NAME OF SUPERVISOR : Dr. JAYANTA GHOSH

NAME OF COLLEGE : HERAMBA CHANDRA COLLEGE

MONTH AND YEAR OF SUBMISSION: April , 2023

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ANNEXURE - 1A

SUPERVISOR'S CERTIFICATE
This is to certify that Mr. Saptadip Haldar, a student of B.Com Honours in Accounting and
Finance, from Heramba Chandra College, affiliated to The University of Calcutta has worked
under my guidance and supervision for his project work and, hence prepared a project report
on, "THE WORKING CAPITAL MANAGEMENT OF ITC LIMITED."

The project report, that he is submitting is genuine and original to the best of my
knowledge.

DATE :

PLACE : KOLKATA

SIGNATURE :

NAME : Dr. Jayanta Ghosh

NAME OF COLLEGE : Heramba Chandra College.

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ANNEXURE - 1B

STUDENT'S DECLARATION

I hereby declare that the project work submitted by me is for the partial fulfilment of the
degree of B.Com Honours in Accounting and Finance, under The University of Calcutta. It is
my original work and has not been submitted earlier to any other course of study.

I also declare that no chapter of this manuscript, in whole or in part has been incorporated
in this report from any earlier work done by others or by me. However, extracts of any literature
which have been used for this report, have been duly acknowledged, providing details of such
literature in references.

Place : Signature :
Date : Name :
Registration Number :

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 ACKNOWLEDGEMENT

First and foremost, I dedicate this project to almighty God, who is solely responsible for all the performances
in my life.

Getting a project ready, requires the work and effort of many people. At this point of successful completion of
my project work, I would like to offer my sincere gratitude to all those people who helped me, by offering
their valuable time and advice.

I am particularly indebted to Dr. Jayanta Ghosh, who has supported me throughout the project work, with his
patience and knowledge while allowing me the room to work in my own way. It was a learning experience to
work under his guidance.

I am also thankful to Dr. Nabanita Chakrabarti, Principal of Heramba Chandra College, for presenting me this
opportunity to carry out this project.

Moreover, I am also thankful to my peers and all other people who have provided their constant support
throughout.

DATE:
Signature of Candidate

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 ABSTRACT
The project report has been prepared keeping in mind, ITC Ltd's available financial statements. The following
report consists of five broad heads or chapters, namely:

1. INTRODUCTION.
2. CONCEPTUAL FRAMEWORK.
3. INTERNATIONAL SCENARIO.
4. CONCLUSION AND RECOMMENDATION.
5. BIBLIOGRAPHY.

Each of the aforementioned sections include a number of sub-headings as well. The Introduction portion has
been further divided into topics such as, background, objectives and limitations of the study, literature review
and the research methodology.

The conceptual framework of the project includes largely, the basics of working capital like, definition,
classification and justification, tools and techniques, etc. The company profile of ITC Ltd. has also been
included here.

Chapter three forms the main body of the project report. It includes analysis of ITC Ltd's working capital
trends of past few years and provides detailed analysis using graphs and tabulated data of the various liquidity
measurement ratios of the firm. Here, interpretations have been drawn and the basis for conclusion and
recommendations of the project have been formed

The conclusion and recommendations part includes what inference was drawn from the financial statement
analysis in the previous phase of the report and the suggestions given to cope up with the same by the firm.

Bibliography provides an insight into the sources of information used to collect data for the final project
report.

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 CONTENTS
SL NO. CHAPTERS PAGE NO.

1. INTRODUCTION 7-13

1.1. BACKGROUND 8

1.2. OBJECTIVES OF STUDY 9

1.3. LITERATURE REVIEW 10

1.4. LIMITATIONS OF STUDY 12

1.5. RESEARCH METHODOLOGY 13

2. CONCEPTUAL FRAMEWORK IN NATIONAL & INTERNATIONAL SCENARIO 14-19

2.1. DEFINITION OFF WORKING CAPITAL MANAGEMENT 15

2.2. COMPONENTS OF WORKING CAPITAL 16

2.3. CLASSIFICATION OF WORKING CAPITAL 16

2.4. JUSTIFICATION OF WORKING CAPITAL 17

2.5. WORKING CAPITAL CYCLE 18

2.6. TOOLS AND TECHNIQUES 19

2.7. IMPACT OF WORKING CAPITAL ON LIQUIDITY AND SOLVENCY 19

2.8. COMPANY PROFILE 21

3. INTERNATIONAL SCENARIO 21

3.1. ANALYSIS AND INTERPRETATION 23-42

4. CONCLUSION & RECOMMENDATION 43-45

4.1. CONCLUSION 44

4.2. RECOMMENDATION 45

5. BIBLIOGRAPHY 46-47

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 :CHAPTER-1:
INTRODUCTION

1.1 BACKGROUND:
Working capital means the funds which are required to meet the daily transactions of the business. In other
words it refers to that part of the firm's capital which is required for financing current assets such as cash,
marketable securities, debtors and inventories. Thus working capital is a very significant facet of financial
management. Every business concern should have adequate working capital to run its operations smoothly. It
should neither have excess working capital nor inadequate working capital, because both of these have
adverse effects on firm's profitability and liquidity positions. Therefore, the business concern should maintain
adequate working capital. The basic objective of working capital is to manage the firm's current assets and
current liabilities in such a way that a satisfactory level of working capital is maintained.

In simple terms, working capital means the amount of funds that a company requires to finance its day to day
operations. Finance managers should be aware of sound techniques of managing current assets.

Working capital policies have a great effect on a firm's liquidity and profitability. Therefore, working capital
should be managed in a way which will ensure that the organization maintains a 'good fit' with the changing
environment and strives to build the capability to cope with challengers.

Working capital management is an important part of business management because insufficient working
capital means insufficient liquidity which always hampers daily business. Efficient working capital management
is very needful to achieve profitability and to maintain liquidity for proper management of working capital.

In general sense "Working Capital" can be defined as the excess of current assets over current liabilities. It
moves from one process to another, from cash to inventories and back to cash. The term circulating working
capital is used to designate those assets that are changed relatively rapidly from one to another i.e., from cash
inventories to receivable to cash.

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1.2 OBJECTIVES OF THE STUDY:
Every business whether big, medium or small, needs finance to carry on its operations and to achieve its
target. In fact, finance is so indispensable today that it's rightly said to be the lifeblood of an enterprise.
Without adequate finance, no enterprise can possibly accomplish its objectives. So this chapter deals with
studying various aspects of Working Capital Management that is necessary to carry out the day to day
operation. The term working capital refers to that part of firm's capital which is required for financing short
term or current assets such as cash, marketable securities, debtors and inventories funds invested in current
assets keep revolving fast and are being constantly converted into cash and this cash flow out again in
exchange for other current assets. Hence, it is known as revolving or circulating capital. On the whole, working
capital performs a function and is of top priority for every finance manager. Call manager must, however, keep
in mind that in their pursuit to liquidity, they should not lose sight of their basic goal of profitability. They
should be able to attain a judicious mix of liquidity and profitability while managing their Working Capital.

Working capital of a firm, is a very important aspect of the company and so it needs to be managed properly.
If the working capital is not managed properly then the company cannot increase its turnover and also cannot
earn profit and for this reason the study of working capital is very important. There are various objectives of
the study which can be follows:

1. To study the working capital of the company.

2. To study the optimum level of current asset and current liabilities of the company.

4. To estimate the requirement of working capital.

5. To study the liquidity position through various related working capital ratios.

6. To know the performance and overall operational efficiency of the company.

7. To provide various financial information of the company.

8. To interpret the financial position of the company.

9. To highlight the policies and produces of working capital analysis.

10. To identify the vertical areas where greater attention is needed for better management

12. To know the deficiencies in the area of the finance.

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 1.3 LITERATURE REVIEW:
 Sagan in his paper (1955), perhaps the first theoretical paper on the theory of working capital
management, emphasized the need for management of working capital accounts and warned that it
could vitally affect the health of the company. He realized the need to build up a theory of working
capital management. He discussed mainly the role and functions of a money manager's inefficient
working capital management. Sagan pointed out the money manager's operations were primarily in
the area of cash flows generated in the course of business transactions. However, money manager
must be familiar with what is being done with the control of inventories, receivables and payables,
because all these accounts affect cash position. Thus, Sagan concentrated mainly on cash component
of working capital. Sagan indicated that the task of money manager was to provide funds as and when
needed and to invest temporarily surplus funds as profitably as possible in view of his particular
requirements of safety and liquidity of funds by examining the risk and return of various investment
opportunities. He suggested that money manager should take his decisions on the basis of cash
budget and total current assets position rather than on the basis of traditional working capital ratios.
This is important because efficient money manager can avoid borrowing from outside even when his
net working capital position is low. The study pointed out that there was a need to improve the
collection of funds but it remained silent about the method of doing it. Moreover, this study is
descriptive without any empirical support.

 Abramowitz (1950) and Modigliani (1957) highlighted the impact of capacity utilization on inventory
investment. Existing stock of inventories is expected to take account of adjustment process to the
desired levels. Thus the variable, existing stock of inventories, is postulated to be negatively related
with the desired stock. The ratio of inventory to sales may affect inventory investment positively
because a high ratio of stocks to sales in the past suggests the maintenance of high levels of
inventories in the past and thus also calls for high investment in inventories in the current period.

 Chakraborty (1973) approached working capital as a segment of capital employed rather than a mere
cover for creditors. He emphasized that working capital is the fund to pay all the operating expenses
of running a business. He pointed out that return on capital employed, an aggregate measure of
overall efficiency in running a business, would be adversely affected by excessive working capital.
Similarly, too little working capital might reduce the earning capacity of the fixed capital employed
over the succeeding periods. For knowing the appropriateness of working capital amount, he applied
Operating Cycle (OC) Concept. He calculated required cash working capital by applying OC concept
and compared it with cash from balance sheet data to find out the adequacy of working capital in
Union Carbide Ltd and Madura Mills Co Ltd. for the years 1970 and 1971. He extended the analysis to
four companies over the period 1965-69 in his 1974 study. The study revealed that cash working
capital requirement were less than average working capital as per balance sheet for Hindustan Lever
Ltd. and Guest, Keen and Williams Ltd., indicating the need for effective management of current
assets.

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 Misra (1975) studied the problems of working capital with special reference to six selected public
sector undertakings in India over the period 1960-61 to 1967-68. Analysis of financial ratios and
responses to a questionnaire revealed somewhat the same results as those of NCAER study with
respect to composition and utilization of working capital. In all the selected enterprises, inventory
constituted the more important element of working capital. The study further revealed the
overstocking of inventory in regard to its each component, very low receivables turnover and more
cash than warranted by operational requirements and thus total mismanagement of working capital
in public sector undertakings.

 Welter, in his study (1970), stated that working capital originated because of the global delay
between the moment expenditure for purchase of raw material was made and the moment when
payments were received for the sale of finished product. Delay centers are located throughout the
production and marketing functions. The study requires specifying the delay centers and working
capital tied up in each delay centre with the help of information regarding average delay and added
value. He recognized that by more rapid and precise information through computers and improved
professional ability of management, saving through reduction of working capital could be possible by
reducing the length of global delay by rescuing and/or favorable redistribution of this global delay
among the different delay centers. However, better information and improved staff involve cost.
Therefore, savings through reduction of working capital should be tried till these saving are greater or
equal to the cost of these savings. Thus, this study is concerned only with return aspect of working
capital management ignoring risk. Enterprises, following this approach, can adversely affect its short-
term liquidity position in an attempt to achieve saving through reduction of working capital. Thus,
firms should be conscious of the effect of law current assets on their ability to pay-off current
liabilities.

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  1.4 LIMITATIONS OF THE STUDY:
The following limitations were encountered while preparing this project:

 This project was completed with annual reports, it just constitutes one part of data collection i.e.
secondary. There were limitations for primary data collection, of confidentiality.
 This project is based on five year's annual reports. Conclusions and recommendations are based on
such limited data regarding the competitors and their financial information were also difficult to get.
 The topic of working capital management is itself a very vast topic, yet very important as well.
 Due to time restraint, it was not possible to study in depth, the practices, that are followed by ITC ltd.
 Since the financial matters are sensitive in nature, the same could not acquired easily.
 Many facts and data are such that they are no to disclosed because of the confidential nature of the
same.
 Since the study is based on historical information provided in the annual reports, so it may not be used
for future indication.
 Fractional differences might be there in the calculated ratios.
 Other areas could not be focused due to lack of time.

LINITATIONS

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 1.5 RESEARCH METHODOLOGY:
Research methodology is a systematic approach in methodology research to achieve predefined objectives. It
helps a researcher in navigation, during the research work. Rules and techniques stated in research
methodology save time and labour of the researcher as know how to proceed to conduct the study as per the
objective.

Types of data collection:

There are two types of data collections methods available-

1. Primary data collection.

2. Secondary data collection.

1. Primary data:

The primary data is that data which is collected fresh or first hand and for the first time and hence is original in
nature. Primary data can be collected through personal interview, questionnaire etc., to support the
secondary data.

2. Secondary data:

Secondary data refers to those data, which have already been collected and stored. Secondary data is easily
obtained from records journals, annual reports of the company, etc. It saves time, money and efforts to
collects the data. Secondary data is also made available through trade magazines, balance sheet, books etc.,
but primary data collection also had limitations such as matter confidential information.

SECONDARY SOURCES:

 The project is based on secondary information collected fro five years annual report of the company,
supported by various books and internets sides. The data collection was aimed at study of working
capital management of the company.
 The secondary data of the organization helped me a lot. I have collected all the figures from the annual
reports and financial statements of ITC Ltd • Records of the company this helped me to get details
regarding the history of the organization.
 ITC Ltd. Website.
 Annual report of ITC Ltd. for the years: 2017-18, 2018-19, 2019-20, 2020-21, 2021-22.

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 :CHAPTER-2:
CONCEPTUAL FRAMEWORK IN NATIONAL AND
INTERNATIONAL SCENARIO

2.1 DEFINITION OF WORKING CAPITAL MANAGEMENT:

Working capital refers to the fund which is needed to support day to day operations, such as, purchase of raw
materials, payment of wages and other expenses. Working capital is not confined to any specific current assets
as they constantly change their form and circulates in the business constantly like the blood circulation in a
living body.

The following is the most important definition of working capital. Working capital is the difference between
the inflow and outflow of funds. In other words it is the net cash inflow. Working capital represents the total
of all current assets. In other words the "Gross Working capital it is known as circulating capital or current
capital for current assets is rotating in their nature. Working capital is defined as "the excess of current assets
over current liabilities and provisions in other words it is the net current assets or net working capital".

2.1.1 BALANCE SHEET CONCEPT OR TRADITIONAL CONCEPT:

It shows the position of the firm at a certain point of time it is. In this method there are two types of working
capital:

 Gross working capital.

 Net working capital.

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  GROSS WORKING CAPITAL:
It refers to a firm's investment in current assets. The sum of the current assets is the working Capital of the
business the sum of the current is quantitative aspect of working capital which emphasizes more on quality
than on its quality but it fails to reveal the true picture of the financial position of the business because every
increase in current liabilities will decrease the gross working capital.

 NET WORKING CAPITAL:

It is the difference between the current assets and current liabilities or the excess of total current assets over
total current liabilities. It can also be defined as that part of a firm's current asset which is financed with long
term funds it may be either negative or positive. When the current assets exceed the current liabilities, the
working capital is positive and vice-versa.

2.1.2 OPERATING CYCLE CONCEPT:

The duration or time required to complete the sequence of events right from the purchase of raw materials
for cash to the realization of sales in cash is called operating cycle of working capital cycle. The operating cycle
consists of three phases in phase 1, cash gets converted into inventory this would include purchase of raw
materials, conversion raw material into work-in-progress, finished goods and terminate in the transfer of
goods to stock at the end of the manufacturing process. In the case of trading organization this phase would
be shorter as there would be manufacturing activity and cash will be converted into inventory directly. The
phase will of course, be totally absent in case of service organizations In phase 2 of the cycle, the inventory is
converted into receivables as credit sales are made to customers. Firms which do not sell on credit will
obviously not have phase 2 of the operating cycle.

The last phase, phase 3, represents the stage when receivables are collected. This phase completes the
operating cycle thus the firm has moved from cash to inventory, to receivables and cash to again.

2.2 COMPONENTS OF WORKING CAPITAL:

The components of working capital are constituents that normally make up the figure of working
capital. So the components of working capital are current assets and current liabilities.

2.3 CLASSIFICATION OF WORKING CAPITAL:

 Gross working capital : The term 'Gross working capital' refers to the firm's investments in
current assets. This is a wider concept of working capital simply it may be said that the summation of
all current assets of a firm is called the Gross Working capital.

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 Net working capital: Net working capital is the difference of current assets and current
liabilities. This is the excess of current assets over current liabilities.

Net Working Capital = (Total Current

Assets - Total Current Liabilities)

a. Positive working capital : This is a type of net working capital. If the total current
assets are more than total current liability then the difference is said to be positive working capital.
b. Negative working capital: This minimum type of net working capital. This situation
occurs when current liabilities exceed total current assets. If total current liabilities are more than total
current assets then the difference is known as negative working capital.

 Permanent or hardcore or fixed working capital : Permanent working capital

is the part of capital that is locked up in current assets to carryout business smoothly throughout the
years. This is the minimum level of working capital that is required to carry out the minimum level of
business activity.

a. Regular working capital : The minimum amount of liquid capital to keep up of the
circulation of capital from cash to inventories receivables and again to cash is called regular working
capital.

b. Reserve working capital : The excess of capital over the needs of regular working
capital which should be kept to meet contingences is called reserve working capital. The contingences
include rising process business depression strike natural calamity etc.

 Variable working capital : This is the capital which is not permanent or variable working
capital is the working capital.
a. Seasonal variable working capital : Seasonal working capital is that working
which is required the meet seasonal demands of the business. In peak seasons more raw
materials are required to be purchased, more expenses need to be incurred, more funds are
locked up in debtors balance etc.
b. Special variable working capital : This is a part of the working capital which is
required to finance special operations such as extensive market campaign experiments with
products or methods of products, carrying out special jobs, etc.
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 2.4 JUSTIFICATION OF WORKING CAPITAL:
A company should without adequate working capital, be something like the human body with blood
deficiency. The need for working capital management is stated as follows :
 Regularity in supply of raw materials : Raw materials are the primary factor of
production for continuous a regular supply of raw materials is needed working capital ensures a
regular supply of raw materials and continuous production.
 Regular payment of wages and salaries : Sound working capital position of the
firm ensures regular and timely payment of wages and salaries which in turn increases the morale and
efficiency of employees.
 Increase in efficiency and productivity : The regular flow of working capital
enhances productivity of labor and increases managerial efficiency. High morale Adequacy of working
capital creates an environment of security confidence high morale and overall efficient of labors it also
helps in the timely payment of dues, if any, to employees besides regular salaries and wages.
 Smooth flow of production : To maintain the smooth flow of production of working
capital is required, without working capital this flow cannot continue.
 Regular supply of merchandise : In case of trading concern working assures regular
supply of merchandise and a continuous process of sale.
 Solvency : Adequate working capital helps in maintaining the solvency of the business fund are
available to make all the payments in the time as and when they are due.
 Goodwill : A firm which maintains a sound working capital position can make payments to its
creditors in time which enhances its reputation or goodwill.
 Easy loans : If the business has a good credit standing, trade reputation and adequate working
capital they can get loan from banks or financial institutions on easy and favorable.
 Increase in profitability : Adequate amount of working capital and its proper management
helps in completing operating cycle quickly. If the rotation of operating cycle increases profitability as
well as profitability can be increase. It helps in the process of growth of the business.

2.5WORKING CAPITAL CYCLE:

Working capital cycle denotes the length of time between the firm's paying cash for materials entering into
work in progress marketing finished goods selling finished goods to the debtors and the inflow of cash
from debtors.

Working capital cycle consists of the following events :

I. Conversion of cash into raw materials, wages and overheads.
II. Conversion of raw materials into WIP.
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 III. Conversion of WIP in finished stock
IV. Conversion of finished stock into debtors through sales
V. Conversion of debtors into cash after the expiry of credit period.
Working capital cycle indicates the length of time or time gap between out flows of cash and inflows of
cash the length of time or duration of working capital cycle for the purpose of determining working
capital requirement is equal to the sum of durations of raw materials labor overheads WIP and debtors
less credit period allowed by creditors, duration of working capital cycle varies according to the nature
of business. The task of finance manager is to shorten the length of working capital cycle.

WORKING CAPITAL CYCLE = (R+W+F+D-C)

2.6 TOOLS AND TECHNIQUES :

Different tools and techniques are used to make a comparative analysis of different aspects of working
capital management of the aforesaid companies. The tools and techniques used are described as
follows.
Financial Tools-These are the financial parameters used to evaluate the financial condition and
operating effectiveness of a business enterprise. The tools used are:

 Ratio Analysis : Financial or accounting ratios portray relationships that exist between
various items appearing in financial statements ie balance sheet, profit and loss account. They
may be expressed in simple mathematical terms like percentages, fractions, and decimals etc,
which make them more readily comprehensible.

 Statement Of Changes In Working Capital : The information relating to

the changes in current natured accounts between two periods of time presented in the form of
a statement is called schedule/statement of changes in working capital.

2.7 Impact Of Working Capital On Liquidity And Solvency :

Working capital management is the most crucial factor for maintaining liquidity, survival, solvency and
profitability of the business. The essential part in management of working capital lies in maintaining adequate
liquidity in day to day

operations. Working capital management involves the decision regarding the amount and composition of
assets and financing these assets. A firm is required to invest more in current assets rather than fixed assets to
maintain adequate liquidity. However, the firm's decision about the level of investment in current assets
involves a tradeoff between risk and return. The firm therefore has to strike a right balance between liquidity
and profitability.
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 : CHAPTER-3:
PRESENTATION, DATA PROCESSING &
ANALYSIS

3.1 COMPANY PROFILE:

ITC Ltd (ITC) was incorporated on August 24, 1910, under the name Imperial Tobacco Company of India
Ltd to make cigarettes and tobacco. In 1975, the company entered the hospitality business with the
acquisition of FTC-Welcome group Hotel Chola. The name of the Company was changed to ITC Limited
in 1974. In recognition of the Company's multi- business portfolio encompassing a wide range of
businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty
Papers, Agro-Exports, Foods, Lifestyle Retailing and Greeting Gifting & Stationery-the full stops in the
Company's name were removed effective September 18. 2001. The Company now stands rechristened
ITC.
ITC is one of India's foremost private sector companies with a market capitalization of nearly US $ 14
billion and a turnover of over $5 billion. TTC is rated among the World's Best Big Companies, Asia's 'Fab
50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected
Companies by Business World and among India's Most Valuable Companies by Business Today. ITC
ranks among India's 10 Most Valuable (Company) Brands, in a study conducted by Brand Finance and
published by the Economic Times ITC also ranks among Asia's 50 best performing companies compiled
by Business Week.
ITC's wholly owned Information Technology subsidiary, ITC InfoTech India Ltd, provides IT services and
solutions to leading global customers. ITC InfoTech has carved a niche for itself by addressing customer
challenges through innovative IT solutions.

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 INTERNATIONAL SCENARIO

ITC International Business Division sells and exports agricultural commodities and aqua foods. It offers
feed ingredients, including soya meal and rapeseed meal; food grains, which comprise rice and pulses;
coffee and black pepper, edible nuts, including sesame seeds, groundnuts, and castor oil, marine
products, which comprise shrimps and prawns; and processed fruits, including mango, papaya, and
guava products. The company was founded in 1990 and is based in Secunderabad, India. ITC-
International Business Division operates as a subsidiary of ITC Ltd.

ITC's International Business Division (ITC-IBD) launched Project Symphony three years ago to transform
itself from a speculation and price-based commodity trading outfit into a knowledge-based and
customer-focused enterprise.

The aim was to become an Rs 1,000-crore entity in three years. Last year, the division achieved a
turnover of Rs 800-crore against around Rs 300-crore three years ago. Its
agro- exports grew by over 48 per cent during 2001-02. The harnessing of information technology
across the value chain from farm to the foreign customer is stated to have enabled ITC-IBD to
substantially increase its export earnings.

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3.1 ANALYSIS & INTERPRETATION:

 WORKING CAPITAL LEVEL AND ANALYSIS:

WORKING CAPITAL LEVEL : The consideration of the level investment in current assets
should avoid to danger points excessive and inadequate investment in current asset investment in
current assets should be just adequate, not more or less, to the need of the business firms Excessive
investment in current assets should be avoided because it impairs the firm's profitability, as idle
investment earns nothing on the other hand in adequate amount of working capital can be threatened
solvency of the firm of its inability to meet its current obligation. It should be realized that the working
capital need of the firm may be fluctuating with changing business activity. This may cause exes or
shortage of the working capital frequently. The management should be prompt initiate an action and
current imbalance.

 CHANGES IN WORKING CAPITAL :

There are so many reasons leading to changes in working capital. These are as follows:

1. Changes in sales and operating expenses :

The changes in sales and operating expenses may be due three reasons :

1. There may be long trend of change, e.g., the price of raw material say oil may constantly raise
necessity the holding of large inventory.

2. Cyclical changes in economic dealing to ups and downs in business activity well influence the level of
working capital both payment and temporary.

3. Changes in seasonal sales activities.

2. Policy changes :

The second major case of changes in the working capital is because of policy changes initiated by
management. The term current assets policy may be defined as the relationship between current
assets and sales volume.

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3. Technology changes :

The third major point of changes in working capital is changes in technology because change sign
technology to install that technology in our business more working capital is required. A change in
operating expenses rise or full well have similar effects on the level of working Following working
capital statement is prepared on the base of balance sheet of last two years.

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 STATEMENTS OF CHANGES IN WORKING CAPITAL

TABLE NO. 1:

PARTICULARS 2018-19 2017-18

( Rs. In Crores ) ( Rs. In Crores )
A. CURRENT ASSETS _ _
CURRENT INVESTMENTS 1,3347.50 9,903.45
INVENTORIES 7,859.56 7,237.15
TRADE RECEIVABLES 4,035.28 2,357.01
CASH AND BANK BALANCES 4,152.03 2,594.88
SHORT TERM LOANS AND ADVANCES 1,506.43 1,152.10
OTHER CURRENT ASSETS 762.06 1,258.41
TOTAL (A) 31,662.86 24,503
B. CURRENT LIABILITIES

FINANCIAL LIABILITIES 4,698.60 4,160.58

CURRENT TAX LIABILITIES 423.69 _
OTHER CURRENT LIABILITIES 4,838.32 4,656.78
SHORT TERM PROVISIONS 51.38 39.24
TOTAL (B) 10,011.99 8,856.60
WORKING CAPITAL (A-B) 21,650.87 15,646.40
INCREASE IN WORKING CAPITAL NIL 6,004.47
TOTAL 21,650.87 21,650.87

INTERPRETATION : Net working capital of ITC Ltd. has increased in the year 2018-19 due to
more increase in Current Assets rather than in Current Liabilities.

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 TABLE NO. 2 :

PARTICULARS 2019-20 2018-19

( Rs. In Crores ) ( Rs. In Crores )
A. CURRENT ASSETS _ _

CURRENT INVESTMENTS 17,175.02 1,3347.50

INVENTORIES 8,038.07 7,859.56

TRADE RECEIVABLES 2,092.00 4,035.28

CASH AND BANK BALANCES 6,843.27 4,152.03

SHORT TERM LOANS 1,510.81 1,506.43

AND ADVANCES
OTHER CURRENT ASSETS 847.74 762.06

TOTAL (A) 36,506.91 31,662.86

B. CURRENT LIABILITIES

FINANCIAL LIABILITIES 4,658.85 4,698.60

CURRENT TAX LIABILITIES 136.71 423.69

OTHER CURRENT LIABILITIES 4,175.91 4,838.32

SHORT TERM PROVISIONS 117.94 51.38

TOTAL (B) 9,089.41 10,011.99

WORKING CAPITAL (A-B) 27,417.50 21,650.87

INCREASE IN WORKING CAPITAL NIL 5,766.63

TOTAL 27,417.50 27,417.50

INTERPRETATION : Net Working Capital of ITC Ltd. has increased in the year 2019-20 due to an
increase in Current Assets rather than Current Liabilities.

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 TABLE NO. 3:

PARTICULARS 2020-21 2019-20

( Rs. In Crores ) ( Rs. In Crores )
A. CURRENT ASSETS _ _

CURRENT INVESTMENTS 14,046.71 17,175.02

INVENTORIES 9,470.87 8,038.07

TRADE RECEIVABLES 2,090.35 2,092.00

CASH AND BANK BALANCES 4,001.5 6,843.27

SHORT TERM LOANS 1,199.92 1,510.81

AND ADVANCES
OTHER CURRENT ASSETS 1,006.07 847.74

TOTAL (A) 31,815.42 36,506.91

B. CURRENT LIABILITIES

FINANCIAL LIABILITIES 5,419.06 4,658.85

CURRENT TAX LIABILITIES 217.06 136.71

OTHER CURRENT LIABILITIES 4,369.00 4,175.91

SHORT TERM PROVISIONS 169.05 117.94

TOTAL (B) 10,174.17 9,089.41

WORKING CAPITAL (A-B) 21,641.25 27,417.50

DECREASE IN WORKING CAPITAL 5776.25 NIL

TOTAL 27,417.50 27,417.50

INTERPRETATION : Net Working Capital of ITC Ltd. has decreased in the financial year 2020-21 due
to a higher increase in Current Liabilities than Current Assets.

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 TABLE NO. 4 :

PARTICULARS 2021-22 2020-21

(Rs. In Crores ) ( Rs. In Crores )
A. CURRENT ASSETS _ _
CURRENT INVESTMENTS 11,624.95 14,046.71
INVENTORIES 9,997.77 9,470.87
TRADE RECEIVABLES 1,952.50 2,090.35
CASH AND BANK BALANCES 3,877.94 4,001.5
SHORT TERM LOANS 2,293.70 1,199.92
AND ADVANCES
OTHER CURRENT ASSETS 1,195.15 1,006.07
TOTAL (A) 30,942.01 31,815.42
B. CURRENT LIABILITIES
FINANCIAL LIABILITIES 5,773.82 5,419.06
CURRENT TAX LIABILITIES 551.39 217.06
OTHER CURRENT LIABILITIES 5,097.28 4,369.00
SHORT TERM PROVISIONS 5,5.60 169.05
TOTAL (B) 11,478.09 10,174.17
WORKING CAPITAL (A-B) 19,463.92 21,641.25
DECREASE IN WORKING CAPITAL 2,177.33 NIL
TOTAL 21,641.25 21,641.25

INTERPRETATION : Net Working Capital of ITC Ltd has decreased in the financial year 2021-22 due to
a higher increase in Current Liabilities rather than in Current Assets.

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  NET WORKING CAPITAL :

Net working capital is a liquidity calculation that measures a

company's ability to pay off its current liabilities with current assets. This measurement is important to
management, vendors, and general creditors, because it shows the firm's short-term liquidity as well as the
management's ability to use its assets efficiently.

The net working capital formula focuses on current liabilities like, trade-debts, accounts payable, and vendor
notes, that must be repaid in the current year. It only makes sense, that the vendors and creditors would like
to see how much current assets, assets that are expected to be converted to cash in the current year, are
available to pay off the liabilities that will become due in the next 12 months.

NET WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

TABLE NO.5 : TABLE SHOWING NET WORKINCAPITAL

TABLE NO.5 : TABLE SHOWING NET WORKING CAPITAL :

YEAR CURRENT ASSETS CURRENT LIABILITIES NET WORKING

CAPITAL

2017-18 24,503.00 8,856.60 15,646.40

2018-19 31,747.27 10,011.99 21,735.28

2019-20 36,506.91 9,089.41 27,417.50

2020-21 31,815.42 10,174.14 21,641.28

2021-22 30,942.01 11,478.09 19,463.92

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 GRAPHICAL REPRESENTATION OF NET WORKING CAPITAL :

40000

35000

30000

25000
CURRENT ASSETS
20000 CURRENT LIABILITIES
NET WORKING CAPITAL
15000

10000

5000

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION :

The Net Working Capital position of ITC Ltd. improved from the financial year 2017-18 to the year 2019-20. It
dipped from the year 2020-21 and the decline continued in the year 2021-22. The dip in working capital can be
attributed to a higher rate of increase in Current Liabilities of the company, as compared to other years.
Overall, it can be said that, ITC Ltd. needs to manage the various components of its net working capital with a
bit more due diligence, so the company can earn even higher profits with prosperity.

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 LIQUIDITY MEASUREMENT RATIOS:

Liquidity ratios measure the ability of an organization to meet its short term obligations. The ratios
which indicate the liquidity of ITC Ltd. are as follows:

 CURRENT RATIO :

The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its
current or working capital position) by deriving the proportion of current assets available to cover
current liabilities.
The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash
equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-
term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes).
Standard current ratio is 2:1.

CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES

TABLE NO.6: TABLE SHOWING COMPUTATION OF CURRENT RATIO :

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

2017-18 24,503.00 8,856.60 2.76

2018-19 31,747.27 10,011.99 3.17
2019-20 36,506.91 9,089.41 4.01
2020-21 31,815.42 10,174.14 3.12
2021-22 30,942.01 11,478.09 2.69

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 GRAPHICAL REPRESENTATION OF CURRENT RATIO
CURRENT RATIO

5
4
3
CURRENT RATIO
2
1
0
2017-18
2018-19 CURRENT RATIO
2019-20
2020-21
2021-22

INTERPRETATION :

From the analysis of past 5 years' Current Ratio, it can be observed that short term solvency or liquidity
position of ITC Ltd. was at satisfactory level for all the years, as the ratios for all the years were more or less
close to the ideal 2:1 mark. However, in the year 2019-20, a Current Ratio of 4.01 is observed, meaning, better
use of the Current Assets could have been made by the organization, in that year.

 ACID TEST RATIO/QUICK RATIO/LIQUID RATIO :

The quick ratio is the relationship between quick assets and current liabilities. Quick assets are current assets
less stock i.e., cash, bank, cash equivalents, debtors and readily realizable securities. A more stringent test of
short-run solvency is the quick ratio. Standard acid test ratio is 1:1.

ACID TEST RATIO = CURRENT ASSETS - (INVENTORY + PREPAID

EXPENSES)/(CURRENT LIABILITIES + BANK OVERDRAFT)

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 TABLE NO.7: TABLE SHOWING COMPUTATION OF QUICK RATIO

YEARS QUICK ASSETS QUICK LIABILITIES QUICK RATIO

2017-18 17,265.85 8,856.60 1.95

2018-19 23,887.71 10,011.99 2.38
2019-20 28,468.84 9089.41 3.13
2020-21 22,344.55 10174.17 2.19
2021-22 20,944.24 11,478.09 1.82

GRAPHICAL REPRESENTATION OF QUICK RATIO

QUICK RATIO

3.5

2.5

2
QUICK RATIO
1.5

0.5

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION :
The Quick Ratio of ITC Ltd. was slightly higher than the ideal Quick Ratio standard of 1:1 in all the five
years of study. In 2019-20, however, the quick ratio of the company was higher than all other years at
almost 3.5. A higher quick ratio is a sign of less efficient usage of resources or suboptimal usage of
resources. This also results in reduced rates of return. Since, the rise in 2019-20, however, it is worthy
to mention that the company tried to cut back on the quick ratio and control their resources, as is
visible from the graph above, which is praiseworthy in this case.

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  DEBTORS TURNOVER RATIO :

This is the ratio between the credit sales and average debtors plus average bills receivable. This ratio
indicates the number of times per year that the average balances of debtors are recollected.

DEBTORS TURNOVER RATIO = CREDIT SALES/AVERAGE DEBTORS

TABLE NO.8: TABLE SHOWING COMPUTATION OF DEBTORS TUR

YEARS CREDIT SALES AVERAGE DEBTORS DEBTORS TURNOVER

RATIO

2017-18 2,357.01 2282.25 1.03

2018-19 4,035.28 3358.78 1.20
2019-20 2,092.00 2869.11 0.72
2020-21 2,090.35 2091.17 0.99

2021-22 1,952.50 2021.13 0.96

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 GRAPHICAL REPRESENTATION OF DEBTORS TURNOVER RATIO

DEBTORS TURNOVER RATIO

1.2

0.8

0.6 DEBTORS TURNOVER RATIO

0.4

0.2

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION :

A company must at least strive to maintain a debtors turnover ratio of 1.0 during any given financial year, to
ensure that it is recovering the full amount of accounts receivable during a given period of time. However, ITC
Ltd.'s debtors turnover ratio has been dwindling over the last few years, meaning inefficient recovery of funds
to be gathered back.

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  CREDITORS TURNOVER RATIO :

This is the ratio between the credit purchase and average creditors plus average bills payable. This ratio
indicates the number of times per year that the average balances of creditors is paid.

CREDTORS TURNOVER RATIO = CREDIT

PURCHASE/AVERAGE CREDITORS

TABLE NO.9: TABLE SHOWING CREDITORS TURNOVER RATIO :

YEAR CREDIT AVERAGE CREDITORS CREDITORS TURNOVER

PURCHASE RATIO
2017-18 3382.28 2966.75 1.14

2018-19 3509.58 3502.88 1.00

2019-20 3446.74 3407.51 1.01
2020-21 4119.53 3783..13 1.08

2021-22 4223.40 4167.36 1.01

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 GRAPHICAL REPRESENTATION OF CREDITORS TURNOVER RATIO

CREDITORS TURNOVER RATIO

1.15

1.1

1.05
CREDITORS TURNOVER RATIO
1

0.95

0.9
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION :
ITC Ltd. is efficient enough in handling trade payables with more liberal credit terms, which is evident from
past 5 years' data above. An ideal creditors turnover ratio is said to be maintained at 1.0. ITC Ltd. has been
doing the rounds near around the same.

 INVENTORY TURNOVER RATIO :

It is the ratio of cost of goods sold or sales to average stock-in-trade. The stock turnover ratio measures how
quickly inventory is sold; i. e. the number of times a business's stock turnover during a year. Stock turnover is
computed by dividing the cost of goods sold by average inventory. This ratio is likely to differ substantially
from one business to another.

INVENTORY TURNOVER RATIO = COST OF GOODS SOLD/AVERAGE

INVENTORY

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 TABLE NO.10: TABLE SHOWING COMPUTATION OF INVENTORY
TURNOVER RATIO :

YEAR COST OF GOODS SOLD AVERAGE STOCK INVENTORY

TURNOVER RATIO

2017-18 21,225.82 7,550.57 2.81

2018-19 20,133.65 7,412.19 2.71

2019-20 20,532.39 7,812.65 2.62

2020-21 20,703.70 8,754.47 2.36

2021-22 27,047.49 9,734.32 2.88

GRAPHICAL REPRESENTATION OF INVENTORY TURNOVER RATIO

INVENTORY TURNOVER RATIO

3
2.5
2
1.5
1 INVENTORY TURNOVER RATIO
0.5
0
2017-18 2018-19
2019-20
2020-21
2021-22

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INTERPRETATION :
The inventory turnover ratio of ITC Ltd. for the last 5 years indicates a low accumulation of stock, which in turn
definitely results in higher profits. It has been maintaining a stable pattern over the last 5 years, with an
improving trend except in 2020-21, when the ratio dipped lower.

 WORKING CAPITAL TURNOVER RATIO :

This is the ratio between turnover and working capital (current assets less current liabilities). This ratio shows
the extent to which a business is using its working capital to generate sales. This ratio indicates the number of
times the working capital has been turned over or utilized during the period.

WORKING CAPITAL TURNOVER RATIO = NET SALES/WORKING CAPITAL

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 TABLE NO.11: TABLE SHOWING WORKING CAPITAL TURNOVER RATIO:

YEARS SALES/TURNOVER WORKING CAPITAL WORKING CAPITAL

TURNOVER RATIO

2017-18 44,329.77 15,646.40 2.83

2018-19 45,784.39 21,735.28 2.10

2019-20 46,807.34 27,417.50 1.70

2020-21 48,524.54 21,641.28 2.24

2021-22 59,745.56 19,463.92 3.06

GRAPHICAL REPRESENTATION OF WORKING CAPITAL TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO

3.5

2.5

2
WORKING CAPITAL TURNOVER
RATIO
1.5

0.5

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION:

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The Working Capital Turnover Ratio of ITC Ltd. has been showing a fluctuating trend, over the last few years,
as can be seen from the graph. Overall position shows efficiency in management of working capital
components and high turnover of revenue to boost the profits of the organization.

 CASH POSITION RATIO

The cash position is a sign of financial strength and liquidity. In addition to cash itself it will often take into
consideration highly liquid assets such as certificates of deposits, short term government debt and other cash
equivalents.

CASH POSITION RATIO = CASH AND BANK

BALANCE/CURRENT LIABILITIES

 TABLE NO.12: TABLE SHOWING CASH POSITION RATIO:

YEAR CASH AND BANK CURRENT CASH POSITION RATIO

BALANCE LIABILITIES

2017-18 2,594.88 8,856.60 0.29

2018-19 4,152.03 10,011.99 0.41

2019-20 6,843.27 9,089.41 0.75

2020-21 4,001.50 10,174.17 0.39

2021-22 3,877.94 11,478.09 0.33

GRAPHICAL REPRESENTATION OF CASH POSITION RATIO

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 CASH POSITION RATIO

0.8

0.7

0.6

0.5

0.4 CASH POSITION RATIO

0.3

0.2

0.1

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION :

The cash position ratio of ITC Ltd. rises abnormally for the first three years, resulting from the excessive rise in
Current Liabilities of the company. However, it is of good knowledge, that the company has managed to pull
back on the ratio during the previous two years and hence, we can say that ITC Ltd. has substantial strength to
meet up its short term liabilities.

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 : CHAPTER-4:
CONCLUSION AND RECOMMENDATIONS

4.1 CONCLUSION
The present study has been conducted to generate a conclusion on the Working Capital Management of ITC
Ltd. The following conclusions can be drawn throughout the analysis:

 Gross and Net Working Capital of ITC Ltd. increased for the initial three years of our study period.
However, for the last two years of study, ITC Ltd. has witnessed a slight downfall in its Net Working
Capital. The organization, though, did well to pull back and recover in the 2021-22 period, as the
working capital decreased at a lower rate, as compared to the fall in 2020-21 from 2019-20. Moreover,
the company has sufficient funds, to meet its short-term obligations, thus signifying sound liquidity
position. The profitability position has been showing prosperity due to striving proper balance between
liquidity-profitability trade-off by efficient management of working capital.

 Short-term solvency or liquidity position of the company is satisfactory, as the current ratios have
closely resembled the ideal ratio of 2:1 and trends of quick ratios have shown highly liquid position,
which were more than standard ratio of 1:1. So, the company will not suffer from liquidity crunch in
near future, if it can retain its present liquidity structure by strict vigilance over working capital
components.

 From the view point of Inventory Management, it has been observed that the Inventory Turnover
Ratios of past 5 years show optimum level of inventory. The best policy of managing inventory is,
"Neither too over-stock, nor too stock-out."

 The company's policy regarding receivables and payables management has revealed a concrete policy
to ensure short-term highly liquid position which has been analysed through debtors and creditors
turnover ratios, for the past 5 years. The company has followed stringent policy for collecting dues and
is able to take advantage of liberal credit rules from suppliers, which ultimately helps to maintain cash
flows of the company.

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4.2 RECOMMENDATIONS :

Sound working capital management is essential for every business. After analyzing the Working Capital
Management of ITC Ltd. the following suggestions has been obtained:

→ Working Capital of ITC Ltd. has been managed very sincerely which is a good sign of prosperity for
the company. The management has to maintain the position further to ensure higher profitability for
shareholders.

Management of the company would be interested in every aspect of financial analysis. It is their overall
responsibility to see that the company's resources are most effectively and efficiently utilized to ensure
a sound financial position of the company.

The company has sufficient working capital and has better liquidity position. By efficient utilization of
this short term capital, it should increase the turnover.

The company should try to control quick assets to avoid idle fund which may hamper higher profits as
the company's quick ratio is bit higher as compared to standard.

The management should pay particular attention to inventory levels despite the fact that a balanced
inventory is often difficult to identify, avoid excess stock, which ties up cash flow.

Companies are generally focused on cash, accounts payable, and supply chain issues. However,
external issues like the legal and business environment, or internal mechanisms like organization
structure and information systems, can significantly impact working capital. So the company should
concentrate on those issues.

→ An innovative approach, combining operational and financial skills and an all encompassing view of
the company's operations will help in identifying and implementing strategies that generate short term
cash. This can be achieved by having the right set of executives who are responsible for setting targets
and performance levels. They are then held accountable for delivering. They are also encouraged to be
enterprising and to act as change agents.

Finally it can be concluded that Working Capital Management is an important yardstick to measure a
company's operational and financial efficiency. This aspect must form part of the company's strategic
and operational thinking. Efforts should constantly be made to improve the working capital position.
This will yield greater efficiency and improve customer satisfaction.

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 : CHAPTER-5:
BIBLIOGRAPHY

: BIBLIOGRAPHY :

BOOKS :

 FINANCIAL MANAGEMENT BY MAJUMDER, ALI, NESHA

REFERENNCES :
 ITC'S ANNUAL REPORTS
 BOOKS, MAGAZINES & NEWSPAPERS

WEBSITES AND SEARCH ENGINE :

 www.yahoosearch.com
 www.google.com
 www.investopedia.com/terms/w/workingcapitalmanagement
 www.itcportal.com
 www.moneycontrol.com
_________________________
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